Johrilal Soni Vs. Smt. Bhanwari Bai
 INSC 155 (1 August 1977)
FAZALALI, SYED MURTAZA FAZALALI, SYED MURTAZA
CITATION: 1977 AIR 2202 1978 SCR (1) 231 1977
SCC (4) 59
Provincial Insolvency Act 1920-Section
453-Whether transfers effected more than 2 years prior to commencement of
insolvency proceedings can be declared void and inoperative by insolvency
court-Difference between void and voidable transfers.
Pyare Lal Gupta, an insolvent, executed a
deed of gift in favour of his wife about 7 years before an application under s.
10 of the Provincial insolvency Act 1920 was made for adjudging him as an
insolvent. The appellant was appointed as a Receiver by the Court. He made an
application under s.
4 of the Act for declaring the deed of gift
as void and inoperative on the ground that it was a sham transaction.
The Insolvency Court upheld the plea of the
appellant and declared the deed of gift as being void and inoperative.
The respondent donee filed an appeal to the
High Court challenging the judgment of the Insolvency Court on the ground that
s. 53 of the Act does not authorise an Insolvency Court to decide questions
about title or validity in respect of transfers made during a period beyond two
years of the commencement of the Insolvency proceedings.
The High Court upheld the contention of the
In an appeal by certificate the appellant
contended that the High Court had taken an erroneous view of s. 53 of the Act.
Section 53 merely deals with voidable
transfer and not void transfer. The respondent contended that since the gift
was made about 6 1/2 years before the insolvency proceedings began, the
Insolvency Court could not examine the question of title.
Allowing the appeal,
HELD : Section 4 of the Act empowers the
Insolvency Court to decide all questions whether of title or of priority or of
any nature whatsoever which may arise in any case of insolvency. The said
provision is, however, subject to the other provisions of the Act. Under s. 53
any transfer of property not being made before and in consideration of marriage
or made in favour of a purchaser or encumbrance in good faith and for valuable
consideration shall if the transferor is adjudged insolvent on a petition
presented within two years after the date of the transfer, is voidable, against
the Receiver and may be annulled by the court. Section 53 only deals with
transfers which are voidable. There is a well known distinction between a void
and a voidable transfer. Void transfer is no, transfer at all and is completely
destitute of any legal effect. It is a nullity and does not pass any title at
all, where a transfer is nominal, sham or fictitious, the title remains with
the transferor and so does the possession and nothing passes to the transferee.
Such a transfer clearly falls outside the purview of s. 53. The limitation of
two years imposed by s. 53 applies only to voidable transfers. [23314, 234A-E]
Haji Anwar Khan v. Mohammad Khan & Ors. AIR  All.
105, referred to.
Madan Kumar and Anr. v. M/s. Hart Narain
Agrawal & Ors.
A.I.R.  All. 141; Padamsi Premchand and
Ors. v. Laxman.Vishnu Deshpande and Ors. AIR  Bom. 129; Radha Krishna
Thakur and Anr. v. Official Receiver AIR  Cal.
642; Biseswar Chaudhuri v. Kanhai Singh AIR
 Pat. 129;
G. N. Godbole v. Mi. Nani Bai AIR  Nag.
546 and Budha Mal v. Official Receiver AIR  Lah. 122, approved.
232 Amjad Ali Ors, v. Nand Lal Tandon and
Ors. AIR  Oudh.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 149 of 1976.
From the Judgment and Order dated 26-9-1973
of the Rajasthan High Court in D. B. Civil Insolvency Appeal No. 50 of 1972.
Badri Das Sharma and S. R. Srivastava for the
O. P. Verma for the Respondent.
The Judgment of the Court was delivered by
FAZAL ALI, J.-To what extent is S. 4 of the Provincial Insolvency Act, 1920
controlled by s. 53 of the said Act in the matter of determination of the
question of title of a property transferred by the insolvent before he was
declared insolvent is the serious question of law which is involved in this
appeal by certificate. The insolvent Pyarelal Gupta appears to have executed a
deed of gift in favour of his wife on November 7, 1961. About seven years later
i.e. on April 1, 1968 an application under s. 10 of the, Provincial Insolvency
Act hereinafter to be referred for short as the Act"-was made for
adjudging Pyarelal as an insolvent. On April 5, 1968 the appellant Zohri Lal
Soni an Advocate was appointed receiver by the Court. On October 15, 1960
Pyarelal was on his own application adjudged as an insolvent by the Additional
District Judge, Jodhpur. On January 4, 1969 the appellant who was the receiver
moved the Court under S. 4 of the Act for declaring the deed of gift dated
November 7, 1961 as void and inoperative inasmuch as it was a sham transaction.
On March 3, 1972 the Insolvency Court of the Additional District Judge,
Jodhpur, after making an inquiry, upheld the plea of the receiver/appellant and
declared the deed of gift dated November 7, 19.61 as being void and
inoperative. Thereafter the respondent Smt. Bhanwari Bai (donee) went up in
appeal to the High Court assailing the judgment of the Insolvency Court on the
ground that it was legally erroneous. The plea of the respondent Bhanwari Bai
seems to have found favour with the High Court of Rajasthan which allowed the
appeal and act aside the judgment of the Insolvency Court declaring the deed of
gift as void by its judgment dated September 26, 1973. The appellant thereafter
applied for grant of certificate of fitness for leave to appeal to this Court
which was granted by the High Court on October 27, 1975, and. this is how the
appeal has been brought to this Court.
The High Court was of the opinion that in
view of the express provision of S. 53 of the Act, the Insolvency Court had no
jurisdiction to determine the question of title, nor could it go into the
question of the validity of a transfer which was made more than two years
before the Insolvency proceedings had started. According to the High Court,
while S. 4 of the Act undoubtedly conferred a power on the Insolvency Court to
decide questions of title, but this power could not be exercised in respect of
transfers made during a period beyond two years of the insolvency proceedings.
233 In support of the appeal, learned counsel
for the appellant submitted that the High Court had taken an erroneous view of
the law and had misconstrued the scope and ambit of s. 53 of the Act. Learned
counsel for the respondent, however, supported the stand taken by the High
Court and submitted that as the gift was made about 61 years before the
proceedings began, the Insolvency Court could not examine the question of
title. A number of authorities have been cited by counsel for the parties in
support of their respective submissions, but we think the question lies within
a very narrow compass. It would appear that s. 4 of the Act was not there in
the Insolvency Act of 1907, but was introduced for the first time by Act 5 of
1920. Before 1920, the Provincial Insolvency Act did not contain any such
provision as a result of which there was a serious divergence of judicial
opinion on the question as to whether or not an Insolvency Court could
determine a question of title regarding a transfer made by the insolvent. Act 5
of 1920, however, set at rest this controversy and gave wide powers to the
Insolvency Court to determine questions of title.
We now proceed to interpret the provisions of
s. 4 itself, the relevant part of which may be extracted thus "4. (1)
Subject to the provisions of this Act, the Court shall have full power to
decide all questions whether of title or priority, or of any nature whatsoever,
and whether involving matters of law or of fact, which may arise in any case of
insolvency coming within the cognizance of the Court, or which the Court may
deem it expedient or necessary to decide for the purpose of doing complete
justice or making a complete distribution of property in any such case."
It would be seen that the section has been couched in the widest possible terms
and confers complete and full powers on the Insolvency Court to decide all
questions of title or priority, or of, any nature whatsoever, which may arise
in any case of insolvency. The only restriction which is contained in s. 4 is
that- these powers are subject to the other provisions of the Act. In other
words, the position is that where any other section of the Act contains a
provision which either runs counter to s. 4 or expressly excludes the
application of s.4, to that extent s. 4 would become inapplicable. Counsel for
the respondent strongly relied on the provisions of s. 53 which runs thus
"53. Any transfer of property not being a transfer made before and in
consideration of marriage or made in favour of a purchaser or in-cumbrance in
good faith and for valuable consideration shall, if the transferor is adjudged
insolvent on a petition presented within two years after the date of the transfer,
be voidable as against the receiver and may be annulled by the Court." It
was submitted that the effect of s. 53 of the Act clearly is that it bars the
jurisdiction of the Insolvency Court to determine the validity 4-768SCI/77 234
of any transfer made beyond two years of the transferor being adjudged
insolvent. It is no doubt true that the words "within two years after the
date of the transfer" being voidable as against the receiver does fix a
time-limit within which the transfer could be annulled by the Court.
But a plain construction of s. 53 would
manifestly indicate that the words "within two years after the date, be
voidable as against the receiver, and shall be annulled by the Court"
clearly connote that only those transfers are excepted from the jurisdiction of
the Court which are voidable. The section has, therefore, made a clear
distinction between void and voidable transfers-a distinction which is well-
known to law. A void transfer is no transfer at all and is completely destitute
of any legal effect: it is a nullity and does not pass any title at all. For
instance, where a transfer is nominal, sham or fictitious, the title remains
with the transferor and so does the possession and nothing passes to the
transferee. It is manifest, therefore, that such a transfer is no transfer in
the eye of the law. Such transfers, therefore, clearly fall beyond the purview
of s. 53 of the Act which refers only to transfers which are voidable. It is
well settled that a voidable transfer is otherwise a valid transaction and
continues to be good until it is avoided, by the party aggrieved. For instance,
transfers executed by the transferor to delay or defraud his creditors may be,
avoided under s. 53 of the Transfer of Property Act. Similarly transfers made under
coercion, fraud or undue influence may be avoided by the party defrauded.
It is only such transfers which, if they take
place beyond two years of the date of transfer, cannot be enquired into by the
Court by virtue of s. 53 of the Act. This appears to us to be the plain and
simple interpretation of the combined reading of ss. 4 and 53 of the Act.
Indeed if a different interpretation is given, it will render the entire object
of the section nugatory, because the Court would be powerless to set at naught transfers
who are patently void, merely because they had been made at a particular point
Reliance was placed by counsel for the
appellant on a Full Bench decision of the Allahabad High Court in Haji Anwar
Khan v. Mohamad Khan & Ors(1) where the following two questions were
referred for the decision of the Full Bench :
" (1 ) Whether an insolvency Court can
try a question of title raised on the basis of a transfer which took place more
than two years prior to the adjudication, having regard to the provisions of s.
53, Insolvency Act ? (2) Would it make any difference if the receiver alleges
that no transfer had been intended from the very beginning and no title had
passed, the transaction being a mere paper transaction and void After
discussing a large number of authorities, Dalal, J., answered the first
question in the affirmative and held that an Insolvency Court could try a
question of title raised on the basis of a transfer which (1) A.I.R. 1929 All.
235 took place two years prior to the
adjudication, but the learned Judge, however, refrained from giving any opinion
on the other question, which in our opinion was the most pertinent question to
be answered having regard to the specific distinction made by s. 53 between
void and voidable transactions. Sen, J., appears to have sounded a discordant
note in observing as follows :
"My answer to the reference is (1) An
insolvency Court cannot try a question of title relating to a transfer which
has taken place more than two years before the order of adjudication having
regard to the provisions of s. 53, Insolvency Act.
(2) Where the transfer was intended not to be
operative from the beginning and the insolvent had remained in possession of
the property the receiver may apply for its annulment. But where the transfer
was executed by a proper instrument and duly registered and was intended to put
the property beyond the reach of the creditors and a third party is claiming
under the transfer, such a transaction cannot be treated as a mere paper transaction."
We feel that the view of Sen. J., appears to be based on a correct
interpretation of ss. 4 and 53 of the Act. King, J., agreed with Dalal, J., and
observed as follows "I see no difficulty, therefore, in giving a meaning
and effect to the words "subject to the provisions of this Act"
without construing them in the restrictive sense suggested by my learned
brother Sen, J. In my opinion they do not bar the jurisdiction of the
insolvency Court to decide a question of title under the ordinary law when the
special provisions of the Act do not apply." In a later decision of the
Allahabad High Court in Madan Kumar and Anr. v. M/s. Hari Narain Agrawal and
Ors (1) following the Full Bench decision referred to above, it was observed as
follows "As observed earlier, Section 53 refers to transfers which are
only voidable and it does not cover a case where the transfer is claimed to be
void since its inception. The bar of two years provided for in Section 53
should not therefore, apply to a transaction which is claimed to be void."
We are of the opinion that the learned Judge has laid down the Correct law on
the subject. A Full Bench of the Bombay High Court in Padamsi Premchand and
others v. Laxman Vishnu Despande and others(2) has taken the same view, which
we have taken. In that (1) A.I.R. 1977 All. 141.
(2) A.I.R. 1949Bom. 129.
236 case, and which we feet is based on a
correct and true interpretation of ss. 4 and 53 of the Act, after considering
the history of the Act,,. Chagla, C. J., speaking for the Court observed as
"It is perfectly true that S. 4 is
merely declaratory of the junsdiction of the insolvency Court..........
Therefore, Mr. Desai is right when he says that if a transaction falls within
the ambit of s. 53, then it can only be challenged provided the conditions laid
down in that section are satisfied......
In our opinion transactions which are
challenged on the ground of their being fictitious or nominal do not fall
within the ambit of s. 53, then s. 4 is wide enough to confer upon the
insolvency Court jurisdiction to decide whether these transactions were in fact
nominal or fictitious." We find ourselves in complete agreement with the
view expressed by Chagla, C.J., in the aforesaid decision. The Bombay High
Court further pointed out that the same view was taken by the Calcutta High
Court in Radha Krishna Thakur and Anr v. Official Receiver,(1) by the Patna
High Court in Biseswar Chaudhuri v. Kanhai Singh (2) the Nagpur High Court in
G. N. Godbole v. Mt. Nani Bai,(3) and the Lahore High Court in Budha Mal v.
Official Receiver.(4) The only decision which appears to have taken a contrary
view is of the Oudh Chief Court in Amjad Ali and others v. Nand Lal Tandon and
others(5) which appears to be the shoot-anchor of the argument of the learned
counsel for the respondent. The Oudh Chief Court observed as follows "We
do not consider that where in s.
5 3 which is governed by this heading the Act
gives the Court power to annul transactions entered into, within two years we
should go out of our way to find that a general section in the same Act gives
power to the Court to annul transactions which may have been entered into at
any time and which are void able under the ordinary law under s. 53, T. P. Act.
In our opinion transactions of this nature
must be challenged, if at all, in an ordinary civil Court and not in the
With dud respect, however, we are unable to
agree with the view expressed by the learned Judges of the Chief Court Oudh,
because they seem to overlook the distinction made by s. 53 between a void and avoidable
transaction. Moreover, the Oudh Chief Court was concerned with a benami
transaction and it is not necessary for us to say anything about such a
transaction, because in the instant case we (1) A.I.R. 1932 Cal. 642.
(2) A.I.R. 1932 Pat. 129.
(3) A.I.R. 1938 Nag. 546.
(4) A.I.R. 1930 Lah. 122.
(5) A.I.R. 1930 oudh. 314.
237 are concerned with a transfer which was
sought to be challenged on the ground that it was a nominal and sham
transaction and thus a void transaction which clearly falls within the four
comers of s. 4 of the Act and is not covered by s. 53 of the Act so as to
deprive the Insolvency Court of its jurisdiction to determine the question of
title of the transfer.
For these reasons, therefore, we are clearly
of the opinion that in the present case the Additional District Judge was right
in holding that the Insolvency Court had complete jurisdiction to decide the
validity of the transfer when it was challenged on the ground that it was a
sham and a fictitious transaction which need not have been set aside and a
declaration that the transfer was void was sufficient.
The view taken by-the High Court is legally
erroneous and is not in consonance with the correct interpretation of ss. 4 and
53 of the Act.
We, therefore, allow the appeal, set aside
the judgment of the High Court and remit the case back to it for a fresh
disposal of the appeal on merits. We make no order as to costs.